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TMI Blog2024 (12) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The impugned Circular No. 181/2022 dated 10.01.2022 which provides the clarification is contrary to the purport of the amendment brought on statute pursuant to the recommendation of the GST Council as per the direction issued by the Hon ble Apex Court to remove the anomaly in the formula in Rule 89 (5). Reliance placed by the petitioner on the decision in case of Allied Motors (P.) Ltd [ 1997 (3) TMI 9 - SUPREME COURT ] would be squarely applicable in the facts of the case wherein the Hon ble Apex Court has held ' In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.' In case of Collector of Central Excise, Shilong vs. Wood Craft Products Ltd [ 1995 (3) TMI 93 - SUPREME COURT ], the Hon ble Apex Court has held that a clarificatory notification would take effect retrospectively and such a notification merely clarifies the position. Clarificatory notifications have been issued to end the disputes between the parties. Therefore, Notification No. 14/2022 dated 05.07.2022 cannot be applied prospectively for the refund claim which were made within two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned advocate Mr. Uchit Sheth for the petitioner and learned advocate Mr. Hirak Shah and C.B. Gupta for the respondents in the respective petitions. 2. Rule returnable forthwith. Learned advocates for the respective respondents waive service of notice of rule. 3. Having regard to the controversy in narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing. 4. The petitioner has prayed for quashing and setting aside the order dated 24.08.2023 rejecting the refund application of the petitioner on the basis of the circular dated 10.11.2022. The petitioner has therefore, also challenged the said circular. 5. The petitioner is engaged in the business of manufacturing orthopedic soft goods for upper extremity, lower extremity and spine as well as mobility assistive devices for home and hotel use. 6. The applicable rate of tax on output supplies of the products manufactured by the petitioner is 5% as its majority of goods are classifiable under HSN90211000 whereas, the applicable rate of tax on main inputs used by the petitioner to manufacture its product ranges from 12% to 18%. 7. The petitioner also availed input services which att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Rule 89. Application for refund of tax, interest, penalty, fees or any other amount.- [(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:- Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC Adjusted Total Turnover} - 21[{tax payable on such inverted rated supply of goods and services x (Net ITC ITC availed on inputs and input services)}]. Explanation : - For the purposes of this sub-rule, the expressions - (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and (b) [ Adjusted Total turnover and relevant period shall have the same meaning as assigned to them in sub-rule (4).] 12. The Hon ble Supreme Court while upholding the validity of Rule 89 (5) of the Rules however directed the GST Council to remove the anomalies in the formula stated therein as under: 132. In our view, the justification of the formula under Rule 89 (5) given by the ASG to create a legal bifurcation is valid. In this context, it would be material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomalies in the formula. In our view, the submission of Mr Sujit Ghosh, that the formula creates a distinction between suppliers having a higher component of input goods than those having a higher component of input services, and must be read down accordingly, must be rejected. The purpose of the formula in Rule 89 (5) is to give effect to Section 54 (3) (ii) which makes a distinction between input goods and input services for grant of refund. Once the principle behind Section 54 (3) (ii) of the CGST Act is upheld, the formula cannot be struck down merely for giving effect to the same. xxxxx 142. The above judicial precedents indicate that in the field of taxation, this Court has only intervened to read down or interpret a formula if the formula leads to absurd results or is unworkable. In the present case however, the formula is not ambiguous in nature or unworkable, nor is it opposed to the intent of the legislature in granting limited refund on accumulation of unutilised ITC. It is merely the case that the practical effect of the formula might result in certain inequities. The reading down of the formula as proposed by Mr Natarjan and Mr Sridharan by prescribing an order of util ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d services x(Net ITC ITC availed on inputs and input services)}. The Council agreed with the recommendation of the Law Committee. 14. The CBIC pursuant to the aforesaid decision of the GST Council issued the Notification No. 14/2022 dated 05.07.2022 being the Central Goods and Service Tax (Amendment) Rules, 2022. In Rule 8 of the aforesaid Rules, amendment is made in Rule 89 of the GST Rules as under: 8. In the said rules, in rule 89, - (a) in sub-rule (1), after the fourth proviso, the following Explanation shall be inserted, namely: - Explanation . For the purposes of this sub-rule, specified officer means a specified officer or an authorised officer as defined under rule 2 of the Special Economic Zone Rules, 2006. ; (b) in sub-rule (2), - (i) in clause (b), after the words on account of export of goods , the words *, other than electricity shall be inserted; (ii) after clause (b), the following clause shall be inserted, namely: - (ba) a statement containing the number and date of the export invoices, details of energy exported, tariff per unit for export of electricity as per agreement, along with the copy of statement of scheduled energy for exported electricity by Generation P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendment made vide Notification No. 14/2022-Central Tax dated 05.07.2022. 18. After the amendment to the formula in Rule 89 (5) was notified, the petitioner filed a rectification application for differential refund as per the new amended formula. A show-cause notice was issued proposing to reject the refund on the ground that the refund was not admissible since the refund as per the old formula was already granted to the petitioner. 19. The refund application filed by the petitioner was rejected by the impugned order dated 24.08.2023 relying upon Circular dated 10.11.2022 on the ground that new formula can apply only to refund applications filed after 05.07.2022. 20. Being aggrieved, the petitioner has preferred this petition challenging the impugned order of rejection of the refund application as well as the Circular No. 181/13/2022-GST dated 10.11.2022 issued by the Central Board of Indirect Taxes and Custom [ CBIC for short]. 21. Learned advocate Mr. Uchit Sheth for the petitioner submitted that the amendment in formula under Rule 89 (5) of the GST Rules is only clarificatory in nature as the GST Council pursuant to the direction issued by the Hon ble Apex Court in case of V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er it is specifically introduced with retrospective effect or not. Reliance was placed on the decision of the Hon ble Supreme Court in case of Commissioner of Income Tax vs. Alom Extrusions Ltd reported in (2010) 1 SCC 489. 27. It was further submitted that this Court has also held that a clarificatory amendment in GST Rules would have retrospective effect even though the amendment was incorporated prospectively. Reliance was also placed in case of Otsuka Pharmaceutical Pvt. Ltd vs. Union of India and ors in Special Civil Application No. 13209/2023 and allied matters decided on 27.03.2024. 28. Learned advocate Mr. Sheth for the petitioner submitted that observation in the impugned circular that the amendment is not clarificatory in nature is contrary to the legislative history of amendment which includes the directions of the Hon ble Supreme Court in case of VKC Footsteps India Pvt. Ltd (supra). It was therefore, submitted that the impugned circular dated 10.11.2022 issued by the CBIC observing that the amendment is not clarificatory in nature is contrary and therefore, required to be quashed and set aside. 29. It was submitted that in fact, the circular does not state a new formul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis applications filed prior in point of time. It was therefore, submitted that the impugned circular is in violation of Article 14 of the Constitution of India as well as contrary to the prescribed time limit for filing refund application as stipulated under section 54 (1) of the Act. 33. It was further submitted that this Court has held that multiple refund applications can be filed for the same period within the statutory period of limitation. Reliance was placed on the decision of Shree Renuka Sugars Ltd vs. State of Gujarat reported in Special Civil Application No. 22339/2022 decided on 13.07.2023 and in case of Pee Gee Fabrics Pvt. Ltd vs. Union of India in Special Civil Application No. 5010/2021 decided on 15.09.2023. 34. It was therefore submitted that in the facts of the case, the period in question is December 2021, while refund as per existing formula was granted vide order dated 30.03.2022 and the rectification application for differential amount of refund as per the new amended formula was made on 13.06.2023. It was therefore, submitted that rectification application was filed within two years as per section 54 (1) of the GST Act. It was further submitted that rectific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 14/2022-Central Tax dated 05.07.2022, we are of the opinion that since there is now an amendment in the Rule 89 (4) itself; as such we refrain ourself from deliberating upon prayer no. 1 and 2 i.e. for setting aside part of paragraph 47 of Circular No. 125/44/2019-GST dated 18.11.2019 and also the alternative contention for declaring the stipulation contained in paragraph 47 of the aforesaid circular as not applicable in these cases. We are confining our interpretation on the question of retrospective effect of the amendment that came in the year 2022, so far as its applicability in the aforesaid writ applications for the sole reason that the vires of the said rule is not under challenge. 12. As far as the explanation inserted by way of amendment in Rule 89 (4) of the CGST Rules, 2017, vide Notification No. 14/2022-Central Tax dated 5.7.2022 is concerned; these rules were not in existence at the time of passing of the Order in Appeal dated 11.10.2021. Rule 1 (2) of 2022 Amendment Rules, specifically provides that save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette . Except for Rules 7, 9, 10, and 19 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey shall come into force on their publication in the officials gazette. From the said notification it is also evident that except for Rule 7, 9, 10 and 19 for which dates with retrospective operation have been provided, no other rules have been given any retrospective effect. Actually, the legislature expressly indicated the date of application of respective rules and for Rule 89 (4), no retrospective date has been indicated in the notification itself; thus, from bare perusal of the notification itself the amendment made to Rule 89 (4) by Rule 8 of Amendment Rules will have a prospective effect. 41. Having heard learned advocates for the respective parties and having considered the facts of the case and comparing the amendment with the unamended Rule 89 (5), it is clear that for the inverted rated supply of goods and service instead of the adjusted total turnover the words ITC availed on inputs and input services has been substituted. Thus, the adjusted total turnover which is defined in sub-clause (b) as per the sub-rule (4) has been given a go-by. Therefore, numerator and denominator are made in harmony which was not there prior to the amendment which had resulted anomaly in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 14. This view has been accepted by a number of High Court. In the case of C ommissioner of Income-Tax v. Chandulal Venichand ([1994] 209 ITR 7), the Gujarat High Court has held that he first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductable. This decision deals with assessment year 1984-85. The Calcutta High Court in the case of Commissioner of Income-tax v. Sri Jagannath Steel Corporation ([1991] 191 ITR 676), has taken a similar view holding that the statutory liability for sales-tax actually discharge after the expiry of accounting year in compliance with the relevant stature is entitled to deduction under Section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed refund prior to 05.07.2022 and the assesses who have applied for refund after 05.07.2022. The impugned circular is therefore contrary to the provisions of the Act as it cannot be said that the refund applications filed after 05.07.2022 would only be entitled to the benefit of the amended Rule 89 (5) of the Act. As per the provisions of section 54 (1) read with section 54 (3) of the Act if the assessee has made refund application within the prescribed period of two years, then the assessee would be entitled to the refund as per the amended formula which has been notified w.e.f. 05.07.2022. In the facts of the case the petitioner has made rectification applications for refund as per new amended formula within two years. Moreover, as held by this Court in the decisions in case of Shree Renuka Sugars Ltd (supra) and in case of Pee Gee Fabrics Ltd (supra), there is no embargo on preferring second refund application if the petitioner is entitled to the same within the period of two years. 48. In view of the foregoing reasons, the impugned order dated 24.08.2023 is hereby quashed and set aside. The Circular No. 181/22 dated 10.11.2022 so far as it clarifies that the amendment is not cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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